CASE 2.

3
THE TROLLEY DODGERS

In I S90, the Brooklyn Trolley [)odgers professional baseball team joined the
N a ti nal League. Over the following years, the Dodgers would have considerable
difficulty competing with the other baseball teams in the New York City area.
Those teams, principal among them the New York Yankees, were much better fi-
minced and generally stocked with players of higher caliber. In 1958, after nearly
seven decades of mostly frustration on and off the baseball field, the Dodgers
shocked the sports world by moving to Los Angeles. Walter O’Malley, the flam-
bovant owner of the Dodgers, saw an opportunity to introduce professional base-
ball to the rapidly growing population of the West Coast. More important,
O’Malley saw an opportunity to make his team more profitable. As an induce-
cn t to the Dodgers, Los Angeles County purchased a goat farm located in
Chavez Ravine, an area two miles northwest of downtown Los Angeles, and gave
th~ property to O’Malley for the site of his new baseball stadium.
Since moving to Los Angeles, the Dodgers have been the envy of the baseball
Id: “In everything from profit to stadium maintenance. the Dodgers are the
. .

prototype of how a franchise should be run.”1 During the decade of the 1980s, the
Dodgers were reportedly the most profitable franchise in baseball, with a pretax
profit margin approaching 25 percent in many years. In late 1997, Peter O’Malley,
Walter O’Malley’s son and the Dodgers’ principal owner, announced that the
franchise was being sold for $350 million to the media mogul, Rupert Murdoch.
A spokesman for Murdoch complimented the O’Malley family for the longstand-
ing success of the Dodgers organization. “The O’Malleys have set a gold stan-
dard for franchise ownership we will do all in our power to live up to that
. .

standard.”2
Peter O’Malley, who still serves as the Dodgers’ president, attributes the suc-
ce~ of the organization to the experts he has retained in all functional areas: “1

1. RJ. Harris, “Forkball for Dodgers: Costs Up, Gate Off,” The Wall Strt’et Journal, 31 August
1990, 111, B4.
2. R. Newhari, “Dodger Sale Heads for Home,” Los Angeles Times, 5 September 1997, Cl, C12.
164 SECTION TWO AUDITS OF HIGH-RISK ACCOUNTS AND INTERNAL CONTROL ISSUES

don’t have ~obe an expert on taxes, split-fingered fastballs, or labor relations with
our ushers. That talent is all available.”3 Edward Campos, a longtime accountant
for the Dodgers, was seemingly a perfect example of one of those experts in the
Dodgers organization. Campos accepted an entry-level position with the Dodgers
as a young man. By 1986, after almost two decades with the club, he had worked
his way up the employment hierarchy to become the operations payroll chief.
After taking charge of the Dodgers’ payroll department, Campos designed and
implemented a new payroll system, a system that reportedly only he fully un-
derstood. In fact, Campos controlled the system so completely that he personally
filled out the weekly payroll cards for each of the four hundred employees of the
Dodgers. Campos was known not only for his work ethic but also for his loyalty
to the club and its owners: “The Dodgers trusted him, and when he was on vaca-
tion, he even came back and did the payroll.”4
Unfortunately, the Dodgers’ trust in Campos was misplaced. Over a period of
several years, Campos embezzled several hundred thousand dollars from the
Dodgers organization. According to court records, Campos padded the Dodgers’
payroll by adding fictitious employees to various departments in the organiza-
tion. In addition, Campos inflated the number of hours worked by several
employees and then split the resulting overpayments fifty-fifty with those indivi-
duals. The fraudulent scheme was finally discovered when Campos was unable
to work for a period of time due to illness and his responsibilities were assumed
temporarily by the Dodgers’ controller. While completing the payroll one week,
the controller noticed that several employees, including ushers, security guards,
and ticket salespeople, were being paid unusual amounts. In some cases, em-
ployees earning $7 an hour were receiving weekly paychecks approaching $2,000.
Following a criminal investigation and the filing of charges against Campos and
his cohorts, all the individuals involved in the payroll fraud confessed.
After pleading guilty to embezzlement charges, Campos was sentenced to
eight years in state prison and agreed to make restitution of approximately
$132,000 to the Dodgers. Another of the conspirators also received a prison sen-
tence. The remaining individuals involved in the payroll scheme made restitution
and were placed on probation.

QUESTIONS
1. What are the key objectives in the audit of a client’s payroll function?
Comment on both objectives related to tests of controls and those related to sub-
stantive audit procedures.
2. What internal control weaknesses were evident in the Dodgers’ payroll sys-
tem?
3. Identify audit procedures that might have led to the discovery of the fraudu-
lent scheme masterminded by Campos.

3. Harris, “Forkball for Dodgers,” Bi.

4. P. Feldman, “7 Accused of Embezzling $332,583 from Dodgers,” Los Angeles Times, 17
September 1986, Sec. 2, 1, 6.